A coupon is a marketing instrument that can be exchanged for a price discount. Retailers and manufacturers distribute discount coupons for a variety of reasons, including, but not limited to: price sensitivity testing, demand generation, increasing sales, promoting store traffic, encouraging new product trial, triggering brand switching, promoting loyalty, and for encouraging club membership renewal.
Coupons are often widely and rather indiscriminately distributed via circulars, newspapers, or the internet. Increasingly, data-driven retailers and online merchants seek to leverage massive sales and marketing databases to target coupons more strategically to specific markets, customer segments, and with increasingly personalized execution channels, even down to the individual consumer, in order to sharpen the coupons' relevance for the recipients, and with it the desired impact on the business. Ill-designed couponing campaigns also carry their risks, perhaps most notably revenues and margins erosion, upping the ante for couponing strategy development.
Coupon redemption models that offer coupons to those individuals who are most likely redeeming their coupons are often too simplistic for many business objectives. Targeting customers with high redemption likelihoods is the optimal strategy if the goal is to maximize coupon redemption, and some retailers consider this as a reasonable strategy to deepen loyalty with their customer. However, retailers who want to maximize other important business metrics, such as revenue, do not always benefit from these models. Indeed, such models often give coupons to customers who would have purchased the offered product anyway. As a result, such customers may just purchase the same amount of the product, but at the discounted price, resulting in limited sales gains and potentially lowering revenue.